He Dow Jones Industrial Average (DJI INDEXES: ^DJI) The market index gained 1.1% in June 2024, but some of the corporate giants in that portfolio posted negative returns.
Are these crisis titans out of the woods, or should you consider buying some shares of high-quality companies on the cheap? Join me as I analyze two of the Dow’s worst performers in June, with the goal of separating the low-priced wheat from the barren chaff.
Nike: down 20.7% in June
Let’s start with the biggest crash. The sportswear and footwear giant Nike (NYSE:NKE) The company’s stock price was doing well for most of last month. Until June 27, the price was flat, followed by a 19% drop on the last trading day of the month.
Nike’s downfall began with a mixed earnings report for the fourth quarter of fiscal 2024 (ending May 31). The company beat Wall Street’s consensus earnings target by 16% but missed its average revenue target by 2.3%.
Specifically, Nike management pointed to uncertainty over exchange rates, the Chinese economy and sales of lifestyle products on the Nike Digital e-commerce platform.
Many analyst firms immediately lowered their target prices for Nike stock, some gave the stock a lower recommendation status, and the market took note. As a result, Nike stock is trading at prices not seen since the brief COVID-19 crisis in March 2020.
The company faces many challenges at the moment. Issues such as the unstable Chinese economy and unfavorable exchange rates also affect Nike’s rivals, but weak e-commerce sales and excess inventory throughout the supply chain should be more directly under the company’s control.
On the bright side, Nike is taking action. The company is rebalancing its product portfolio, introducing modern ideas like 3D-printed sneakers with artificial intelligence (AI) designs, and has begun cutting costs.
It may be tempting to buy some Nike shares at a multi-year low price. However, the slow pace of the e-commerce channel, which is supposedly experiencing high growth, worries me. Is the brand losing value in the eyes of younger consumers?
Furthermore, Nike stock is not on sale. The stock is valued at modest ratios of 20 times earnings and 18 times free cash flows, indicating a fair value for a very mature stock.
So I’ll leave Nike stock aside for now. There are plenty of deeper value ideas to consider before taking a chance on the potential turnaround of this footwear giant.
Walt Disney: down 4.5% in June
Power of entertainment Walt Disney (NYSE: DIS) In June, the price drop was milder and, coupled with a steeper drop in April, Disney shares have burned through the market goodwill they had earned thanks to a fantastic earnings report in February.
Why are investors looking down on Disney and its stock these days? Well, activist investor Nelson Peltz liquidated his position in Disney after losing a proxy battle over the company’s future. Peltz could have brought new ideas to Disney’s business plan. In particular, he wanted Disney’s board to show some firmness in evaluating legendary CEO Bob Iger’s plans and ideas.
On the other hand, Peltz’s campaign may have achieved some of its goals in another way. His money management firm, Trian Partners, sold its stake in Disney for a $1 billion profit. The challenge may also have given the management team and board a new sense of fiscal responsibility. The company’s ventures into the world of streaming video continue, but only after selling off unprofitable operations, such as the Hotstar streaming service in India.
Disney’s valuation is comparable to Nike’s in many ways, and overall slightly higher. To be fair, I should probably stay away from this stock as well. However, I’m more impressed with Disney’s future in the streaming world and its industry-wide entertainment empire than Nike’s troubles in a much smaller market.
There are a very small handful of stocks that I follow closely, looking for unmotivated price declines. Disney is on that list, and the current drop in the stock looks like a solid buying opportunity to me.
So there you have it. Nike and Disney suffered a setback in June, but their paths going forward look very different.
Nike has some major hurdles to overcome before it can get back on track, making it a tough buy for now. On the other hand, Disney’s vast entertainment empire and strategic moves into the streaming sector make it a more interesting buy during this stock slump.
Should You Invest $1,000 in Walt Disney Right Now?
Before buying Walt Disney stock, consider the following:
He Motley Fool Stock Advisor The team of analysts has just identified what they believe to be the Top 10 Stocks for investors to buy now…and Walt Disney wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the years ahead.
Consider when Nvidia I made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, You would have $786,046!*
Stock market advisor offers investors an easy-to-follow blueprint for success, including guidance on how to build a portfolio, regular analyst updates, and two new stock picks each month. Stock market advisor The service has more than quadruple the return of the S&P 500 since 2002*.
See all 10 actions »
*Stock Advisor performance as of July 2, 2024
Anders Bylund has positions in Walt Disney. The Motley Fool has positions in Nike and Walt Disney and recommends them. The Motley Fool recommends the following options: Nike call options expiring January 2025 at $47.50. The Motley Fool has a disclosure policy.
Is It Time to Buy June’s Worst-Performing Dow Stocks? was originally published by The Motley Fool